Convertible Term Assurance

Convertible term assurance is a unique type of life cover that gives the policyholder the option to upgrade a term life insurance policy to whole of life assurance. When you first purchase life insurance, you may have difficulty deciding whether you wish to invest in permanent coverage that lasts for your entire lifetime, or a term policy that provides financial protection for a limited period of time. Convertible term assurance may be considered a medium between the two, as it allows you to convert to permanent assurance if your circumstances change.

Term Life Insurance Cover

Term life insurance is a form of financial protection that covers the insured for a set period of time, generally between 1 and 30 years. If the policyholder dies within the term of the contract, the beneficiaries named on the policy will receive the sum insured, which is determined by the policyholder. If the insured outlives the contract, neither the insured nor the beneficiaries will receive anything, and the contract will expire unless is it renewed.

Because term life insurance cover is limited to a specified period of time, it is generally more affordable than whole of life assurance, which provides lifelong cover to the policyholder. With whole of life assurance, a payout is guaranteed to your survivors no matter when your death takes place, as long as your premium payments are up to date. Affordable term life insurance is often used to provide financial protection for children until they have grown, or to cover a mortgage until it has been paid off.

Unlike term insurance, whole of life assurance has a cash account which may be used as a savings or investment fund. The cash value of a permanent life assurance policy may grow through earned interest or profits from the insurer's investments, dependent on the type of policy you've purchased. After you have paid your premiums for a certain period of time, a whole of life assurance policy may be cashed out for its monetary value. Alternatively, the cash value of permanent assurance may be used as collateral for a loan during your lifetime.

Converting to Permanent Assurance

If you are uncertain about whether you wish to invest in permanent assurance, a convertible term assurance policy gives you the flexibility to change your mind at a later date. The conversion to permanent life assurance is generally made near the expiration date of the term life contract. At this time, you may choose to upgrade your cover to a whole of life assurance policy or an endowment policy, a form of life assurance that doubles as an investment fund.

If you choose to convert to permanent assurance, your insurer cannot deny your request or increase your premiums due to a change in your health status. However, your premiums may be increased to reflect your age and the upgrade from temporary to permanent coverage. In most cases, the sum assured of your permanent life assurance must remain the same as the sum insured of your term life insurance policy.

Convertible term assurance is a flexible alternative to a standard term life insurance policy. If you purchase a traditional term life insurance policy and you choose to buy whole of life assurance at the end of the term, you may pay more for your cover if you've had a decline in health. With convertible term assurance, your acceptance is guaranteed, regardless of your health status. Convertible term assurance is appropriate for those who foresee the possibility that their needs may change by the time their term life insurance expires.

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